Congress and the White House want to protect online commerce from special taxes. But they'll first have to overcome opposition on Main Street. By Will Rodger

The taxman cometh, and this time to the Internet - that is, unless somebody
stops him first. As it happens, two members of Congress are trying like
hell to do just that.

Working as a bipartisan, bicameral tag team, Representative Chris Cox
(R-California) and Senator Ron Wyden
(D-Oregon) have each introduced a bill called the Internet Tax Freedom
Act. Known as S 442 in the Senate and HR 1054 in the House, the legislation
takes a broad swipe at a profusion of taxes that could stifle the development
of electronic commerce.
(See "Taxing Taxes," page 210).

In plain English, the Internet Tax Freedom Act would ban state and local
authorities from imposing extra taxes on Internet-based businesses that
aren't already imposed on businesses in meatspace. Under the proposed law,
if Ohio makes Main Street retailers collect 4.5 percent sales tax, online
companies will be required to levy the same tax - no more, no less. In
essence, the bill guarantees the right of local and regional governments
to collect existing taxes, so long as they don't tax Net-based business
differently.

The measure, in other words, serves as a kind of tax ceiling, if not tax
prohibition. If it becomes law, however, Internet commerce will enjoy a
respite from the myriad taxes that could be levied as online transactions
pass through any of the 30,000 taxing authorities in the US. Back in the
18th century, it was an analogous concern that inspired the Constitution's
ban on state taxation of interstate commerce.

Sound reasonable? The Senate Commerce Committee thought so, and approved
S 442 for a full vote on the Senate floor. On the other side of the Capitol,
the same is expected to happen once the House Commerce and Judiciary committees
take up HR 1054. Supporters of the measure include groups such as Americans
for Taxpayer Reform, the Information Technology Association of America,
and Commercial Internet Xchange, as well as Internet guru Vint Cerf.

"The chances for passage are excellent," says Cox. "This has been one of
Congress's top priorities for the first half of the year. I anticipate
President Clinton signing this bill no later than the August recess."

Still, state and local governments wanted to kill the measure - and fast.
During hearings last summer, representatives of intergovernmental taxing
authorities, the city of Richmond, Virginia, and the state of Texas all
predicted economic ruin if the law is signed.

Leading the opposition to the Internet Tax Freedom Act is Senator Byron
Dorgan (D-North Dakota), a former state tax commissioner, and he's found
an ally in Senate majority leader Trent Lott (R-Mississippi). "This bill
would create a special class of people who would be exempt from taxes,"
says Barry Piatt, Dorgan's spokesperson.

That special class is Internet merchants who, like mail- and phone-order
companies, are now exempt from collecting out-of-state sales tax under
a 1992 Supreme Court ruling. If the new law passes, Internet merchants
will explicitly be held to the same standard.

The National Governors' Association (NGA) charged hard on the issue, enlisting
chair George Voinovich of Ohio to lobby Washington for the cause. To Voinovich,
taxing the Net means saving local jobs and storefronts from extinction.

But even in Ohio, the politics of the Internet Tax Freedom Act are complex.
Voinovich has faced opposition from his own state treasurer and fellow
Republican, Kenneth Blackwell. Blackwell, also a rising star in the GOP,
warns, "The National Governors' Association is essentially a tax-levying
organization determined to produce a cybureaucracy unrivaled in human history."

The NGA has also grappled with serious dissent within its ranks. Governors
from four of the group's largest and most influential states - California,
Massachusetts, New York, and Virginia - endorsed the Internet Tax Freedom
Act. Last year, Alabama vowed to pull out of the NGA to protest the group's
pro-tax lobbying efforts in Washington.

Even more troubling for the NGA, Bill Clinton also supports the proposal.
"There should be no special breaks
for the Internet," Clinton says, "but we can't allow unfair taxation to
weigh it down and stunt the development of the most promising new economic
opportunity in decades."

In mid-March, the governors' association compromised and agreed to support
the bill. So the taxman may cometh to the Net, but only for a short stay.